Post-election Brexit commentary

Given the turmoil caused by the hung parliament that now exists as a result of the 8 June General Election, Donald Tusk, the European council president, and Guenther Oettinger, Germany’s EU commissioner, have both hinted at a delayed start to the Brexit negotiations, which were due to begin in Brussels on 19 June. However, whilst the start may be delayed the end date will still remain the same.

What can we expect to be the main points of impact?

A much softer stance is likely to ensue and whether or not you believed that the UK would have compromised during negotiations anyway, it is very likely that the issue over the rights of EU citizens will now be addressed sooner rather than later.  

Those from the EU who are in the UK may well see a clear line drawn – ‘you are here and you are welcome to stay’ – and it is hoped that a reciprocal arrangement will be forthcoming for UK citizens residing in the EU-27. Similarly, whilst freedom of movement will still be a contentious issue, it is very likely that the UK will move to streamline the visa and passport processes so that key talent are still encouraged to come to these shores.

Many in Europe are seeing this ‘defeat’ for Theresa May and the Conservatives as positive for the negotiations. They do not revel in the chaos that the UK has caused for itself since they need to obtain a positive outcome themselves – and they certainly see softer negotiations as likely from this result.

Logically, we are likely to see a standstill on some negotiations and therefore a move towards outline agreement in the two-year timescale, with a period of transition for a period of time beyond 2018, to iron out the mechanics of the trickier negotiations. This does not necessarily mean long-term uncertainty, since everyone will want to see a direction established as soon as possible, but some sectors may find final solutions will take longer to reach than others.

Ironically, the UK voted to exit the EU a year ago, yet once they had a prime minister who had taken up the mantle to lead those negotiations, they have now essentially voted to replace her. Neither main party had a fiscal policy that survived scrutiny from the Institute of Fiscal Studies (IFS), with black holes regularly being discovered. More accurate analysis will be required and a new set of options will be put forward – whatever structure the new Government.

Where does this leave us?  
  • The strong stance on immigration (again, ironically the lynchpin of last year’s referendum) is now likely to be relaxed, at least for the foreseeable future, and this should ultimately produce a greater peace of mind for those EU citizens in the UK.
  • The pound tumbled on announcement of the exit poll on 8 June and is likely to bounce around for a few days until it establishes its new level. However, only a Conservative majority would have seen the markets improve, so whilst imports will continue to be expensive, our exports will be bolstered as it becomes cheaper to buy British.
  • Investor confidence is likely to follow the markets and therefore will take a hit initially.  However, if the softer stance on immigration comes through, then in turn we can see British industry profiting in the medium term.
  • A hard Brexit would have seen a big hit on GDP and therefore a reduced income from tax.  So whilst the Brexit negotiations will define the levels of tariffs and how they will be applied, it is less likely now that there will be an initial hit from an intransigent negotiating stance.
  • Perhaps the need to continue with EU rules during a transition period becomes inevitable but the effort required to rewrite such rules into UK law will become even harder to achieve in the ever-decreasing time available before finalising the deal.